This comes as the three-month Singapore Interbank Offered Rate (Sibor) - which is used frequently to price mortgage loans on floating rates - surged again on Wednesday. It stood at 0.653 per cent, up 0.86 basis point from a day ago. Since the start of the year, Sibor has spiked by nearly 20 basis points.

Analysts pointed out that there would be a further lift as Sibor's movements are linked to that of another benchmark, the swap offer rate (SOR).

Market voices on:

Both benchmarks effectively show how much it costs banks to obtain SGD. The SOR, more often used for business loans, is in turn derived by accounting for the exchange rates of SGD against the US dollar (USD) for both spot and forward trades. With the USD gains and optimism over the US economy in recent months, the SOR began trending higher from late-October. Gains in Sibor followed from January this year. The SOR also rose on Wednesday from a day ago, though it has retreated from the one-year high in January.

The move by the Monetary Authority of Singapore (MAS) to cut the slope of its Singapore dollar nominal effective exchange rate (S$NEER), comes as Credit Suisse flagged in a Jan 12 report that MAS had already allowed the S$NEER to trade below the mid-point of the policy band that it is allowed to float within.

This signalled that "the central bank has implicitly allowed a slower pace of exchange rate appreciation", said Credit Suisse then. The S$NEER refers to the rate at which the SGD is valued against an undisclosed basket of currencies. The more trade that Singapore does with a country, the greater the weight of that country's currency in the basket. Mr Wan further said that the MAS may have been intervening to prevent the S$NEER from falling too much. This is done by buying SGD, and selling USD. Assuming MAS did not inject SGD liquidity from the market after doing so - or a sterilised intervention - Sibor may have spiked as a result of a fall in SGD supply.

Still, MAS said on Wednesday that it has not been prompted to take "extraordinary measures in our money market operations". "Domestic interest rates are expected to rise in tandem with US interest rates, regardless of the January policy announcement," an MAS spokeswoman said. "There could be some short-term volatility in the financial markets, reflecting uncertainties over the pace of interest rate normalisation and developments in the foreign exchange market."

Standard Chartered revised its forecasts for Sibor and SOR. It now expects three-month Sibor to reach one per cent by the end of the year, and the six-month SOR to hit 1.15 per cent by then.

Morgan Stanley said in a research report that the move would be "modestly beneficial" for Singapore bank earnings. Each 25 basis point on Sibor would add between 1.5 per cent and 3 per cent to Singapore lenders' profits, it noted. The bank, like most analysts, singled out DBS as most likely to benefit from currency and rate moves. DBS has nearly half of its loans in either USD or the Hong Kong dollar - which is pegged to the USD - the highest among the three Singapore banks. DBS also has the lion's share of SGD deposits, of around 25 per cent.

"However, we expect the major driver of Singapore bank share prices to be perceptions on the timing of Fed fund rate rises," Morgan Stanley said.

An earlier version of the story said the SOR has retreated from the one-year high in December. It should be January. An amendment has been made to reflect this.